Welcome to the Profitability Ratios Suite. This tool contains four distinct, dynamically linked calculators.
Pro Tip: If you enter your Revenue or Net Income in one calculator, it will automatically sync to the others below it. This allows you to quickly analyze an income statement without repetitive typing. You can also work backward — enter your target margin to see exactly what revenue or income is required to achieve it.
1. Gross Profit Margin
Measures how efficiently a company produces its goods or services, before administrative costs.
2. Operating Profit Margin
Measures profitability after paying for variable costs of production as well as fixed operating expenses (rent, SG&A).
3. Net Profit Margin
The ultimate bottom line. Measures the percentage of revenue that remains after all expenses, taxes, and interest have been paid.
4. Return on Equity (ROE)
Measures the profitability of a business relative to the equity invested by its shareholders.
Understanding Profitability
Profitability ratios are the ultimate measure of a company’s operating success. While liquidity ratios show if a company can survive, profitability ratios show if a company can thrive.
They are generally divided into two categories:
- Margin Ratios (Income Statement): These measure the company’s ability to turn sales into profits at various stages of the income statement (Gross, Operating, Net).
- Return Ratios (Balance Sheet): These measure the company’s ability to generate returns for its capital providers (Return on Equity).